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Wednesday, February 12, 2014

Yes, Transfer Money form NRO to NRE Saving Account, FCNR is Allowed

Not many NRIs (Non-resident Indians) knows that, from May 2012, NRI can transfer fund from NRO account to NRE account in India. Earlier this was not the case though you can transfer funds from NRE to NRO account, the reverse was not allowed. The only way to fund your NRE saving account was through your offshore income earned in foreign currency.
Things have changed, The Reserve Bank now allows non-resident Indians (NRIs) to transfer funds from non-resident ordinary (NRO) account to Non-Resident External (NRE) account subject to a ceiling of $1 million in a financial year. This move is encouraging as now NRI can make maximum use of their funds and can transfer to overseas, when they needed or when they feel its better investment opportunity.

As I have said before, an NRE saving account is for depositing income from abroad, while an NRO saving account is mainly for putting Indian incomes. There are also few more important difference between them e.g. In case of NRE account, only NRIs can become joint account holders but for NRO account both resident and non-resident can become joint account holders, you can see my post 5 difference between NRE and NRO accounts for more detail.

What kind of fund you can transfer from NRO to NRE account

Actually, I thought to write this article, when one of my friend asked me, Can I transfer fund from NRO saving account to NRE account? he was under the impression that its not allowed. As I said, its allowed but their are some restrictions on what kind of fund you can transfer from NRO to NRE saving account. Key point is source of fund should be repatriable i.e. can be freely transfer to overseas bank account. here are some key things to note, while doing fund transfer from NRO saving account to NRE accounts.

1. An NRI can only transfer funds from NRO to NRE account, if total amount is within USD 1 million in a financial year. This is the maximum limit of fund, which can be transfer from ordinary to external account.

2. You can transfer interest earned on NRO accounts to your Non resident external(NRE) and your Foreign Currency Non Resident Indian account. It means you can not open FCNR fixed deposit from your all your NRO fund, until you have interest earned which is more than the minimum amount required in a particular currency e.g. most of the banks including, ICICI, YES bank, DBS, HDFC put minimum threshold of 1000 USD

3. Transfer of funds from NRO to NRE account is subject to payment of applicable taxes . Only if the taxes are clear you can move funds, which means you need to inform your bank in advance for documents, which can show that you have paid the tax. We will see about those documents in next section.

4. You can transfer almost all the fund from NRO account if the source of funds in the NRO account is transferable/ repatriable e.g. if the fund was initially transferred from an NRE account or deposited as foreign currency travellers cheque, or they are result of a NRE fixed deposit or bond getting matured, initially opened using money from Non Resident External, NRE account.

Document Requirements for Transfer of Funds from NRO to NRE

Since interest earned on NRO accounts attract tax, while interest earned on NRE account is tax-free, it's important to pay tax before moving funds from NRO to NRE account, you need to submit certain documents. In order to transfer funds from NRO to NRE account, Non-resident Indians or NRI need to submit Form 15CA (online application form) and form 15CB (Chartered Accountant Application) to the bank branch.

It's good to know that now it's possible for NRIs to transfer funds from NRO to NRE account subject to certain restrictions, as mentioned above. You can use this facility as per your convenience, I would suggest to read and understand your bank's policy or give a call to your relationship manager to understand it better, especially if you are thinking to transfer large amount from NRO to NRE account. By the way, its always best to keep your foreign income on NRE account only, as it doesn't attract tax and fully repatriable.

8 comments:

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I have NRO account where my savings earned in India are held. Now I have moved abroad and would like to transfer all the funds to foreign accounts (less than 1M dollar). Is it allowed since the source of this NRO funds was not NRE/FCNR or foreign exchange. It was actually earned in INR.

My Father passed away have a flat Value $60.00 Lakhs and we are 3 brothers 2in India, I am USA Citizen Question : My share of RS20.00 Lakhs will be deposited in NRO account per my brother.Question : What is procedure to Transfer funds to NRE account ? or Wire Transfer to USA New York account ?

When I came to US , I didnt open NRE/NRO account for 1.5 Years, For my Friend marriage I transferred many for him from my Savings account, Now I opened NRE/NRO account , If he transfer to my NRO will that considered as a new income?Because the original source was earned in onsite.